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Harvest Health is still undervalued, AltaCorp Capital says

Harvest Health
Harvest Health
Harvest of Scranton

US cannabis name Harvest Health & Recreation (Harvest Health Stock Quote, Chart, News CSE:HARV) had a stronger than expected quarter, according to AltaCorp Capital analyst Kenric Tyghe, who issued an update to clients Wednesday.

Tyghe maintained his “Outperform” rating on HARV and one-year target of C$4.00, which at press time represented a projected return of 88 per cent.

Arizona-based Harvest Health serves adult-use and medical markets in the US and Canada with operations in nine states and with 35 dispensaries and 24 cultivation and production facilities. Along with strong presences in Florida, Pennsylvania and Maryland, HARV is the market leader in Arizona with 14 stores.

The company delivered its first quarter 2020 results on Wednesday featuring revenue of $45.0 million, up 134 per cent year-over-year and up 19 per cent sequentially. Harvest reported a net loss of $20.0 million versus the same $20.0 million a year earlier. (All figures in US dollars except where noted otherwise.)

Over the first quarter, the company completed a capital raise, completed the acquisition of Interurban Capital, owners of Seattle-based Have a Heart dispensaries and completed the acquisition of Arizona Natural Selections.

“Our improved financial results during the first quarter demonstrate progress toward our primary goal of returning to profitability through cost reduction measures and investments in core markets Arizona, Florida, Maryland, and Pennsylvania,” said CEO Steve White in a Wednesday press release.

Harvest Health

Tyghe called HARV’s Q1 a soft beat on revenue at $45.0 million compared to the analyst’s $43.2-million forecast and the consensus estimate of $43.0 million, while HARV’s adjusted EBITDA loss of $3.9 million was better than the Street’s forecasted loss of $6.2 million.

At the same time, the analyst pointed to management’s 2020 revenue guidance which was lower than expected at $200 million versus Tyghe’s call for $221.4 million and the consensus $233.6 million. Tyghe also noted that Harvest currently has about $70.0 million in cash versus debt servicing needs of about $40.0 million and expected capex for the remainder of the year somewhere between $10.0 million and $30.0 million.

“While we are mindful that Harvest is currently a show me story, we believe that the Company’s portfolio is very well positioned in key high growth states. Harvest’s focus states are largely either supply constrained or offer material option value on the legalization of recreational use, which we believe Harvest, on continued improved execution is well positioned to monetize,” Tyghe wrote.

We are revising our estimates to reflect both management’s guidance of 2020e revenues of approximately $200.0mm, and our read through on the impact of both company specific and macro initiatives on the margin profile through H2/20e. While we are encouraged by recent approvals to reopen stores in the key Harvest markets, we are mindful of the potential headwinds on consumer spend exiting COVID-19 lockdowns, driven by a rattled consumer and a marked spike in unemployment rates,” he said.

Tyghe is now calling for 2020 revenue and adjusted EBITDA of $196 million and $1 million, respectively, and for 2021 revenue and adjusted EBITDA of $328 million and $64 million, respectively.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

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